Introduction

Accounting involves a lot of complexities but understanding some basic principles and factors can be very helpful. This section will help you started in understanding the accounting process.

Key Financial Questions

Financial reports tell you important things about financial activities. “Did You Have a Profit or Loss?" is answered by your Income Statement. A Balance Sheet talks about your Financial Status. A Cash Activities Statement tells you "What Happened to the Cash?"

Many of us ask the question "Why Budgets?"

Once you obtain a set of financial statements about a business or other financial activity, you need to know the Key Financial Questions to ask. This will help you understand what has happened so far, and give you the insight to make changes that will improve future results.

There are certain Essential Financial Reports that any business owner or manager needs to see and review on a periodic basis to avoid surprises.

Types of Accounting Records

Financial accounting records include certain basic documents, including Category Lists which define those activities in your business that are worth identifying and noticing. In this context “noticing” means "accounting for".

Accounting Journals are the transaction diaries of the business.

General Ledger is the record where all the running totals of the balance sheet, income and expense categories are maintained

Trial Balance is a snapshot of the general ledger balances by category at a specific date.

Financial Reports are amounts grouped by general ledger categories, according to the Chart of Accounts. For example you may record sales by product line, geographic district, type of product or service, and other methods. But your Income Statement would group all these activities under a caption "Sales".

Entering Transactions

In order to be sure that the various transactions in the Money Soup are available for analysis, you need to follow the Double Entry Recording Rules. If you want to see how the records were kept by a bookkeeper other than yourself you need to understand why an Audit Trail is essential.

The process of keeping a current and accurate set of accounting records involves How Often Do You Enter Transactions , how you Edit Transactions to Catch Errors, and after editing and correction, how you will Post Transactions to the General Ledger. [In some accounting systems posting is instantaneous]

Checking Results

Keeping an accurate set of accounting books is not an accidental or haphazard procedure, even if you have the best computer accounting program
ever written. You need to make sure that your accounting procedures and internal control system, also known as "Finding Errors and Avoiding Mischief" is in place and up to date. As money transactions become common on the Internet, accounting procedures will have to change to reflect the new environment.

Part of the process of getting ready to issue financial statements involves reconciliation of details to totals. You should at a minimum Review the Trial Balance for Errors, make sure that the step “Reconcile the Bank Accounts” is completed, do the Proving Accounts Receivable, and the Proving Accounts Payable.

You may need Accounting Adjustments to correct errors found in the review procedures. The process of reading, Draft Financial Statements is in itself a checking procedure. For example if the financial statement show a negative cash balance, but you know that is not the case, you need to investigate why the Balance Sheet shows the incorrect cash balance.

Cash Custody and Accounting Jobs

The financial aspects of business management involve two basic threads: asset custody and accounting for transactions. The founders of this country believed that human nature is basically greedy and power seeking.

By separating political powers among the Executive Branch, Congress, and the Judiciary, the United States democracy would still consist of greedy humans. But one greedy person having to approve the activities of another greedy person limits the ability of any individual to exercise selfish desires.

A sound accounting system is set up somewhat like the US Constitution. There are built-in checks and balances to insure that the same individual does not receive deposits, write the checks, and keep the accounting books. This is called segregation of duties.

Various roles in asset management and bookkeeping include a Deposit Manager, a Check Writer and an Accountant.